BitPay’s Stephen Pair On International Expansion and the Future Of Cryptocurrency

Though cryptocurrency is becoming more mainstream, it’s still somewhat of a challenge to find brick-and-mortar businesses that let you spend it in real-time. There are directories to search for merchants that accept cryptocurrency, but until recently, users couldn’t exactly head into a Starbucks and pay for an order with bitcoin — the currency is stored in the blockchain, generally within a bitcoin wallet. Safe, secure, but mostly inaccessible for physical purchases.

Not if you’re the owner of BitPay’s Visa prepaid debit card. The card lets you use the BitPay platform, which processes around $2 million in bitcoin payments daily, to transfer the cryptocurrency into real dollars, euros or pounds to spend on groceries, your mom’s birthday present, or to pay for that iced mocha latte.

Launched domestically about a year ago, after hitting 12,000 users in the U.S. this past May, the card recently became available in over 130 countries around the world.

It’s a particularly-appealing product for those in countries where financial systems are volatile. Cryptocurrencys’ strength lies in security — the decentralized nature of the blockchain makes fraud impossible. In theory, consumers can now keep as much of their money as they want on the bitcoin blockchain and move a few hundred dollars at a time over to be spent on the debit card.

Simple right? Not so much. Cryptocurrency is still a new concept: the community is constantly discovering new uses, dealing with challenges like saturation of the blockchain, and struggling with infighting. BitPay founder and CEO Stephen Pair, who was one of the earliest entrepreneurs to tackle a product that employs the bitcoin system, gave Hype his take on the future of bitcoin and cryptocurrency, how the debit card actually works, and how this growing Atlanta company is taking on the challenges.

Bitpay was one of the first companies to create an entire product based on cryptocurrency. How did you even get into this?

I’ve been generally interested in cryptographic payment systems since the early 1990s. There was something around that time called DigiCash, which was really the world’s first cryptographic payment system, but it was a centralized system. I was also interested in this concept of money— I remember thinking about physical money and it being this worthless piece of paper with worthless names stamped on it— yet people give it value. What I realized, and what a lot of people realize now, is if that is really the case, then money must be an information system. If it’s an information system, it should be possible to do it electronically, build a money system that’s fully electronic.

When bitcoin showed up, I was kind of dismissive of it at first. But when I read the computer science white paper behind it, from my previous research I immediately saw that they had solved this really key problem of how do you create a system that isn’t dependent on a centralized administrator. That got me very excited.

I was eager to get back into a startup, I was looking for ideas, but nothing really grabbed me until I saw bitcoin. I started thinking, well, I need to do something with this.

Why did you decide not to expand not to expand to other cryptocurrencies?

BitPay’s business model only needs one cryptocurrency. And it’s not that we only handle bitcoin. From day one, we handled dollars, Euros, Pounds, other alternative digital assets — they’re just in a centralized, different form. And we will support all the other alt-coins, all the other alternative blockchains. On the edges, whether it’s on the settlement side or on the payment side, we can convert into and out of bitcoin. So we have people that integrate with BitPay and use Litecoin, for example, to pay a BitPay invoice.

But for our backbone, we only need one blockchain that is secure and liquid. Interestingly enough, despite bitcoin’s history of being very volatile, all of the other crytocurrencies are more volatile than bitcoin. We are able to manage the volatility of bitcoin. Bitcoin has more liquidity, and a deep liquid market for trading is also very important to our business. Finally security: bitcoin’s is a big blockchain, many orders of magnitude more secure than all the other cryptocurrencies combined. Those factors — liquidity and security — are why we choose bitcoin.

If we were to add a second cryptocurrency, it would because we thought that alternative had a chance at overtaking bitcoin. And, most likely at this point, it would be a fork of bitcoin. There is a big divide in the community right now about how to scale bitcoin and I would not be surprised if two or three branches of bitcoin emerge over the course of next couple of years.

If we felt both of those forks had a good shot at being cost-effective and secure and liquid enough for our business, we might simultaneously utilize those forks of bitcoin. They might both be successful, but there might be one or the other that’s better for BitPay’s stability. So we might keep both, we might drop one. We’ll see.

You hear a lot about Ethereum and other cryptocurrencies nowadays— there are over 600 trading on the market. What are the differences between these and bitcoin?

They’re less secure. They’re less liquid. Their price is being driven by something called ICOs, Initial Coin Offerings. There’s probably hundreds of these ICOs happening, and we are extremely concerned about this. We feel that there’s a lot of people putting a lot of money in these token sales that are going to end up being worthless. This token is just being traded on the promise that someone will build something in the future, so it’s sort of quasi-secure, a quasi-fund for securities — but there is no actual liability on the part of the entrepreneur to actually turn that into something that’s real. They can walk away and take the money and disappear, and there’s no consequences right now.

ICOs are driving the price of Ethereum and those other currencies. When the ICO market collapses, and I’m almost 100 percent sure it will and probably within the next year or two, it will be very interesting to see what happens to Ethereum itself and to all the companies who stake their reputation around Ethereum.

To me it’s a pretty scary thing. That’s kind of an odd perspective coming from a company that built itself on bitcoin, but we see the real value in Bitcoin. Our customers use bitcoin to accomplish real things for their business or buy real products. A lot of them don’t care about Bitcoin or cryptocurrency; they just care about what they can do with bitcoin through BitPay’s platform. So I can see real actual utility and value in what we do on the bitcoin blockchain. I don’t see any actual real utility and value on those other blockchains.

How do those ICOs on other currencies affect bitcoin’s value?

At this point hedge funds are starting to put serious dollars into cryptocurrency in general, which is pushing them all higher. And there are some alt-coins that may find their niche, might find their specific area.

I think the big worry about any currency crashing is that at that point, it would become a casino. People would start to sell and it would become a race to the edge, that whole thing collapses, people lose fortunes.

When that happens, there could be regulators start to step in. My only hope is that it doesn’t have collateral damage for bitcoin itself from a publicity perspective. It wouldn’t be fair for the whole industry to have a reputation because of the gamblers, those trying to ride the wave and get ahead of the curve.

Let’s talk about your partnership with Visa, which makes it efficient and easy for consumers to transfer bitcoin to dollars and actually spend them. How did the partnership come about?

Well, we have some people here who come from the industry. Our previous chief compliance officer was from Visa, and we have some people who built prepaid products at other companies.

From their perspective, bitcoin was a very safe, very secure, low-risk way to fund a balance on a card. We accept Bitcoin on our platform, which we’re very confident of its market value. And there’s really no way fraud can then occur in that actual payment. The whole reason bitcoin has been successful is because of business security.

So now with Visa, we have an easy way that we can convert to dollars. Today if you go into a restaurant, the odds are they don’t accept bitcoin. So this serves as a bridge technology for the bitcoin owner to, as often as you want, convert some of your bitcoin into a dollar balance on a Visa card and then quickly spend it.

It helps you liquify the market highs — when the prices rallies with bitcoin you might want to convert some right then and have a balance on the debit card. And for some it’s a way to control the risk that you have on a debit card for fraud.

Why’d you go with Visa?

We talked to a number of different card networks and Visa seemed the most forward-looking and receptive. They let us put our actual brand on the card.

What are the benefits to them besides fraud prevention?

We see a very different usage pattern for BitPay card holders than the average debit card holder. They tend to be wealthier. They tend to spend higher amounts, they tend to use the card more. It’s far more sticky — for example, we charge a nominal dormancy fee to those that don’t use the card in three months, just to encourage people to either use the card or shut it down. We’ve seen a fraction of a percent charged the dormancy fee.

All of our metrics are very different from a typical debit cardholder, since those tend to be made up of more people that can’t get credit.

You launched first in the US and then you expanded to 131 counties. When did you make the determination that you were ready to go global?

We launched a little over a year ago in the U.S. Just a couple of weeks ago we launched internationally. We decided to do that probably six months ago when we were at 10,000 cards. We were very happy with the growth, the adoption and usage of the card. We felt that we had built a good user interface to show transaction history. And we found a good partner to go on the international card builder.

Is there a competitor in the space for this type of product?

In the U.S. we’re dominant. There’s one other card out there that is a competitor. They work a little bit differently and they only work in conjunction with a Coinbase account, whereas ours will work with any bitcoin wallet. We’re above 15,000 cards now domestically. Internationally we’ve sold a few thousand in the first few weeks.

Do usage patterns differ between U.S. and international users?

The U.S. user tends to be more of an early adopter or more technology-oriented people. They tend to buy bitcoin and hold onto it because they think it’s going to be successful and go up in value over time.

The situation is very different in South America, where we have a strong user base. In other parts of the world they have very archaic financial systems. They tend to be very cash-oriented societies. A debit card paired with bitcoin account gives them an easy way to convert Bitcoin into real money securely. So they also use bitcoin more transactionally, rather than just as an investment.

For example, we have an office and about 8 employees in Argentina. They get paid 100 percent of their salary in bitcoin. Then they convert that, as needed, into Pesos. Traditionally they’ve had to go marketplaces and trade cash for bitcoin. Now they have the debit card and they can do that electronically.

So with all this growth, you are also expanding the team here, right?

Yes. I would expect us to add, company-wide, in the range of 15-20 by the end of the year. Mostly developers, mostly based in Atlanta.

What product updates are you looking towards?

Right now, with bitcoin being so congested, the network is at its capacity. There’s infighting in the community about how we’re going to expand capacity, but it’s undisputed that we are at capacity. That’s driving fees higher— the average fee is now more than the $3-$5 range for bitcoin transactions. It’s also building congestion— it’s making things slower.

Right now our focus is on building our platform so that you don’t really notice the congestion. For example, if you don’t put the exactly right fee on a transaction it can get stuck, where it won’t get confirmed by the network. We are making it so that our tools always put the right fee on the transaction. If you pay on BitPay it will always get confirmed on the blockchain.

The next step for us is implementing some off-blockchain mechanisms. There is something called a Payment Channel that allows you to have two transactions, an opening transaction and a closing transaction. Then you can aggregate as many transactions as you want over that payment channel as you want.